Pegging the Bitcoin Down – What Do ICOs Have to do With it

There are a lot of things that come to mind when we hear about bitcoin. The first thing is definitely its exchange rate. How is it that the value of a single bitcoin has surpassed US$6500, when it was trading at a couple of 100 dollars about 2 years ago? The next thing is, is it a bubble? Are the naysayers like Jamie Dimon (JP Morgan Chase) and Vladimir Putin (Russian President) right in calling it a sham?

What’s the Real Claim to Fame for Bitcoin’s Growth?

These legitimate questions that deserve answers as George W. Bush would put it. But what’s actually driving the bitcoin may surprise you.

Its competition: other digital currencies and ICOs.

There are nearly hundreds of digital currencies that have sprung up in the past couple of years, like Ether, XRP and others through their ICOs (unregulated versions of the Initial Public Offerings for Limited Liability Companies). ICOs are ways of raising money for a business or cause by introducing a digital currency for the first time to depict the value of the startup’s venture like a traditional share does.

Plenty of Liquidity in the Realm of Digital Currency

January through September 2017, there has been more than $1.2billion of funds generated by more than a hundred of these so called “ICOs.” Many of these ICOs don’t have their own coin but they are using bitcoins as IOUs for gathering their funds. The more the prices of bitcoin increase, the higher the funds these companies will have.

This makes the Bitcoin the only major liquid asset for all of these ICOs. Bitcoin has been around the longest and can therefore be converted readily into cash (thus making it a liquid asset by definition) in comparison to different other currencies. This is the main reason that bitcoin has seem some very rapid growth in the past couple of years. Ether, which is only second in value and trade volume to the bitcoin as the cryptocurrency of choice, has grown due to similar reasons, by being used as ICO tokens. The only difference is of scale. When Ether first came into the world of crypto-coins in 2014 through its own ICO, in fact, it raised a whopping $18 million mostly through issuing bitcoins.

Most of the ICOs are funded through bitcoin alone and they continue their use of bitcoin for funding and the tons of liquidity it offers, for their transactions once their own coins are functional. Many of these currencies haven’t even started circulating in the mainstream crypto-scene. There are regulations that prohibit investors from taking part in investing in these newer coins.

Bitcoin is still the primary medium of exchange for the ICOs that do have their own coin circulating in the market. The funds and payouts are made through bitcoin, making it dearer. The reason that bitcoin is used despite their own coin is that there are so many investors already on the market that have these bitcoins and that there are massive trading volumes of these digital currencies in the market. The traders get the benefits of having some of the best executed prices because of growing competition.

Bitcoin prices and Ether prices are more likely to increase as more currencies come into play, in the future, in the cryptocurrency realm.

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